Uber Hit With New Blow in London as Panel Says Drivers Aren’t Self-Employed

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Yaseen Aslam, left, and James Farrar challenged Uber in Britain on behalf of a group of 19 drivers, arguing that the ride-hailing company had denied them basic protections by classifying them as self-employed.CreditCarl Court/Getty Images

LONDON — Uber suffered another setback in its biggest market outside the United States after a British employment tribunal rejected the ride-hailing company’s argument that its drivers are self-employed.

The decision on Friday, which affirmed a ruling issued last year, means that Uber will have to ensure that its drivers in Britain receive a minimum wage and paid time off. That creates problems for a common hiring model in the so-called gig economy that relies on workers who do not have formal contracts.

Companies argue that such labor practices increase flexibility on both sides of the hiring equation. But critics counter that the system is exploitative and deprives employees of important safeguards like unemployment insurance.

The ruling was the second blow to Uber’s business here in recent months. In September, London’s transport authority barred the company from operating in the British capital.

In the case before the employment tribunal, two men, James Farrar and Yaseen Aslam, had challenged Uber on behalf of a group of 19 drivers, saying that the service had denied them basic protections by classifying them as self-employed. Uber countered with an argument it has used around the world: Its drivers were independent contractors.

“You can hide behind technology, but the laws are there, and they need to be obeyed and respected,” Mr. Aslam, 36, said in an interview after the tribunal issued its decision. “The impact of this ruling could affect thousands of drivers, and not just drivers but millions of workers across the U.K.”

“It just means we can’t be exploited,” he added.

The acting chief of Uber’s British operations, Tom Elvidge, said the company would appeal the decision, either to the Court of Appeal or to Britain’s Supreme Court.

As part of his softer approach, Mr. Khosrowshahi went on a charm offensive last month in an effort to win over the London transport authorities. Uber is appealing the London ban, which declared the company not “fit and proper” to operate in the city. Uber was allowed to continue operating in the city until a final ruling was made in the case.

Mr. Khosrowshahi’s shift in tone comes at a crucial time. Uber is aiming for an initial public offering in 2019, and working on securing a multibillion-dollar investment from the Japanese conglomerate SoftBank.

As part of its push to win over customers and drivers concerned about Uber’s reputation, the company has introduced new measures and services, including allowing users to add tips to fares. Uber has also promoted its efforts, particularly in Britain, to provide drivers with benefits like access to insurance and pensions.

“Essentially, it has been outrunning employment law and legislators,” said André Spicer, a professor at City University’s Cass Business School in London. “It’s having to become more like a normal company, rather than one that was able to evade existing legal frameworks.”

Uber’s operations in London are crucial to its global expansion. The company started operating in the city in 2012, and now offers its services in dozens of cities nationwide. About 40,000 people drive for Uber in the British capital, and the company says that three million customers have used the app in London at least once in the past three months.

Uber’s arrival in London has, however, set off a clash with the city’s famous black cabs. Drivers in the centuries-old taxi system must pass an exacting test known as the Knowledge, which requires the memorization of around 25,000 streets and 100,000 landmarks. A ride in a black cab is typically far more expensive than using Uber, which cabbies complain is too lightly regulated.

Opponents of Uber argue that it is able to undercut rivals on price largely because of its employment practices, which mean it can avoid paying some of the costs and contributions required by permanent employees. But the company’s business model is facing challenges across Europe. The region’s highest court is expected to rule by year’s end in a case involving whether Uber should be regulated as a taxi service, which would make it subject to rigorous safety and employment rules, or as a digital platform that simply connects independent drivers and passengers.

Labor experts say that laws in most countries have failed to keep pace with advances in technology and the rise of the gig economy. In Britain, for example, the main piece of legislation that regulates how workers are treated was passed in 1996.

“The legislation is old,” said Susannah Kintish, a partner at the law firm Mishcon de Reya who specializes in employment law. “It came out when the Spice Girls had their first hit. It’s just way out of date.”

A version of this article appears in print on , on Page B1 of the New York edition with the headline: Ruling on Drivers in Britain Deals Uber Another Setback. Order Reprints | Today’s Paper | Subscribe